How The Business Of Streaming Services Will Perform In 2023?
When I was a kid, Friday nights meant gathering around our rusty old TV set, which was a bulky CRT monitor that had faithfully served us for years. It was a weekly ritual - my family and I sat together, snacks in hand, eagerly waiting to watch our favorite movies.
The joy of watching 'live' television was fkn amazing, despite the commercials and the occasional scramble to fix the antennas during poor reception. 😂 The remote control was our magic wand, flipping through cable channels in search of our favorite shows. Then came the dish TVs and things pretty much stayed the same. Only more movies & shows, more ads, and but limited mostly to local content.
Then came the streaming services which completely revolutionized the world of entertainment. A touch of a button and bam! It felt unreal like being handed the keys to an endless library. Thousands of TV shows & Movies are at our fingertips now.
In this blog, I am sharing a small business case study to understand how the industry of streaming services works and what we can expect from it in 2023. So grab your popcorn and settle in because it's all about binge-worthy content, cliffhanger endings, and yes, your increasingly complicated relationship with that subscription bill. 🤑🤑
How Do Streaming Services Make Money?
For this blog, we will take the example of Netflix, the most popular & "chill" streaming service on the planet. It makes money majorly through subscriptions, partnerships, and ad revenue. Subscription has been the top driving force then partnerships and now ad revenue. Let's not talk about profits because there might not be much to say on that front.
The streaming service is expected to have over 251 million subscribers by the end of 2023 which is only an 8% increase from the previous year. They have a hunch that ads could start to bring in a pretty penny, making up "at least 10%" of their whopping $30 billion (and counting!) annual earnings.
There's even a prediction floating around that says Netflix could be raking in a cool seven billion USD from ads alone by the year 2027. But will the prediction become a reality? Let's find out.
The 2022 Recap: Year of Change
2022 was quite a rollercoaster ride for the streaming industry. After Netflix launched a monthly subscription with ads things were not the same as before. Disney+ followed the move and released a similar ad-supported tier. The streaming landscape changed more rapidly than one could hit the 'skip intro' button 😂 We are 5 months into 2023 and industry experts are predicting a challenging year for streaming services again.
2023: Year of Challenges
Mike Proulx, research director at Forrester, warns that content quality might take a hit this year, as the crazy production and licensing fees are simply unsustainable in the long run. So, if you've been noticing an uptick in cheesy rom-coms and less high-quality content, there's an explanation! As per him, users will follow where the content is.
And what about the ads? Ah, those pesky little interruptions that remind us there's a world beyond our favorite shows. As Geetha Ranganathan, senior media analyst at Bloomberg Intelligence, points out, many platforms have introduced ads, but it remains to be seen how successful they will be given the current economic climate.
Subscriber Retention
Retaining subscribers is expected to be a significant challenge. There's an irresponsible amount of options out there. With the crackdown on account sharing and the need to perfect advertising formulas, we might see a winnowing of services. Some of them will lose customers and the hit has been seen already in the subscriber count of several platforms.
The ultimate question remains - how much advertising interruption will consumers tolerate?
Consolidation & Vertical Integration
In the face of these challenges, our beloved platforms are not sitting idle. Obviously, they cannot see numbers going down. Industry experts predict consolidation, with smaller platforms like Paramount+, Peacock, and AMC+ potentially merging to survive.
We might also see a shift towards vertical integration. Imagine a single player that owns the studio, the distribution, the ad-tech stack, the data that powers the ad-tech stack, and the device. That's a fundamentally different model than a studio working through a cable or broadcast, or satellite telecom distribution model to an open marketplace of devices.
Big Players Playing Big Plays
So, who are the big players likely to be in this brave new world? Netflix and Disney+ will continue to dominate, but new tech platforms like Amazon Prime are gaining popularity. The burning question is what the future of ESPN+ will be and whether it will become the destination sports streaming platform with Disney biting the bullet and abandoning traditional TV distribution. Talk about a game-changer! Equally important will be Warner Bros. Discovery's launch of its new streaming product and how well it executes. Streaming wars have just begun.
Now, let's talk numbers because, as we all know, money makes the streaming world go round. As of 2023, the average number of streaming apps per household is about 7, which is only a fraction of the number available. That's seven different login credentials to remember, folks! But despite this, advertising has become increasingly important to streaming as media companies seek to maximize their average revenue per user to offset higher production costs. And it's not just the traditional players getting in on the game – Apple TV+ recently hired a head of sales, indicating its entry into ad-supported streaming.
Netflix still holds the crown with 230.8 million global subscribers. In comparison, Disney+ has 161.8 million international subscriptions. 48 million Hulu and 24.9 to ESPN+. Paramount reports 56 million for its titular service (bumped to 77 million when adding Showtime's and BET's services), and NBC Universal's Peacock has 20 million. Warner Bros. Discovery reported 96.1 million subscribers across its direct-to-consumer platforms HBO Max and Discovery+. This data is taken from Adage.com.
But There Is A Twist
While Netflix and Disney+ may be leading in terms of subscriptions, the leader in terms of share of streaming eyeballs is YouTube, with a 7.9% share, surpassing Netflix's 7.3%. Digital and social video platforms, such as YouTube and TikTok, have become juggernauts in reach and engagement, posing a threat to the traditional streaming services.
Conclusion
As we navigate this increasingly complex streaming landscape, it's clear that the stakes are higher than ever. Whether it's through consolidation, improved advertising strategies, or better content, these platforms are fighting to stay relevant in an ever-changing market. So, as we settle in for another night of binge-watching, we can rest assured that the real drama is unfolding behind the scenes.
I hope you found the business of entertainment entertaining enough. If you did, please comment below and upvote to support me.
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It is easy to look at streaming as something simple but what a monumental shift in broadcasting and video content consumption!
There will be ebbs and flows of adoption & consumer behaviour for everything but it is neat to see people get snagged by an affordable monthly fee to watch their favourite show and whatever else is packaged with it in a subscription. Then, having bragged about not having to spend $50/month on a cable of satellite package, they end up spending $70 on a bunch of packages as their favourites are fragmented among different subscriptions.
I imagine the bidding wars for independent content and venture capital like funding in exchange for exclusivity at least bringing profitability back to the established brands of story and filmmaker.
Then there is the backlash against advertising now where you will pay a premium NOT to see advertising. Those advertisers are having to get creative and reach out to more regional marketing sources (like my digital marketing company https://towncriermarketing.ca) to reach consumers directly.
Then there will be blockchain! The attention economy and being able to connect socially with individuals directly who have wallets of disposable income ready to invest in digital content. Imagine what is next besides consolidation!
Great article and congrats on 10k!!!
Thank you so much Zeke. I am satisfied with what we have done so far. Waiting to see how Blockchain will transform the industry in the upcoming years. Still, not much development happened on that front but it will be there at some point in time.
100%. I hope so too. It can be a win-win situation for everyone.
Yes, there are a ton of ways to market your products and services. What kind of clients do you serve? Would love to know more about you and what you do.
I think many companies will opt for vertical integration to reduce overhead costs. YouTube tried branching into standard streaming but it hasn't achieved renown success. With so many options for consumers, key players will have to up their game and deliver quality content otherwise their churn rate will start going up.
Great post!!!
Thanks a lot bro. You are absolutely right, customers will go where the content is. They don't give much shit about the features or brand.
Times have changed now!
Indeed! We wear a different lens now. Streaming services will have to change their viewpoints. You're most welcome!
For sure in the fast-evolving world of streaming services, the introduction of ads and the challenge of content quality pose significant hurdles nowadays. With subscriber retention becoming crucial, the industry is likely to witness consolidation and vertical integration as platforms strive to maintain their relevance in the face of competition from digital giants like YouTube and TikTok. I think outside of the box thinking is needed in order to engage users, retain and increase the user base.
That's true. Ultimately it all comes down to the question - what's in it for me?
If you can successfully answer that question for your customers, then there is a chance.